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The Sinocism China Newsletter 03.08.15

"Sinocism is the Presidential Daily Brief for China hands"- Evan Osnos, New Yorker Correspondent and National Book Award Winner

I am traveling again this week so there will not be another issue until at least Wednesday Beijing time. I will be on Twitter @niubi.

Today’s Links:

THE ESSENTIAL EIGHT

1.The Coming Chinese Crack-Up – WSJ We cannot predict when Chinese communism will collapse, but it is hard not to conclude that we are witnessing its final phase. The CCP is the world’s second-longest ruling regime (behind only North Korea), and no party can rule forever. // David Shambaugh oped. I think his scenario has a <10% probability, and the probability of a “Crack-up” may even be lower now than it was in 2011-2012. Xi’s apparent control of the PLA and security services, the instruments of hard power I discussed last summer, should make it much harder for anyone to mount significant resistance in an organized way against what Xi, and the support from many quarters for what Xi is doing should not be underestimated. Shambaugh does a smart job hedging by leaving the timing open-ended, so he has all the upside of possibly being right and little downside of being “wrong” as he can always say “not yet”. Interestng that there seems to be a new surge of “coming collapse of China” prognosticating

Related:Don’t expect reform from China’s new leaders – The Washington Post – David Shambaugh 11.15.2012 For his part, Xi, like Hu, remains a cipher: We do not know whether he is a closet reformer, a real reformer or another apparatchik-technocrat. His background suggests the last. At least he smiles and has a warmer public persona than the wooden Hu. Nonetheless, Xi & Co. will be trapped by these and other powerful vested interests that strangled the would-be reforms of Hu’s more progressive advisers and the acolytes of his predecessor, Jiang Zemin. To break the Iron Quadrangle and launch the much-needed new reforms will require enormous vision and willpower on Xi’s part, an investment of huge institutional resources to buy them off, and time. It will be at least two years before Xi can consolidate his power and be in a position to tackle the powerful vested interests that run China today. And it is not clear that he is even so inclined. //worth noting that Shambaugh misread Xi and the state of elite politics back in November 2012

Related:Michael Auslin: The Twilight of China’s Communist Party – WSJ 1.29.15 “I can’t give you a date when it will fall, but China’s Communist Party has entered its endgame.” So says one of America’s most experienced China watchers to a small table of foreign diplomats at a private dinner in Washington, D.C. The pessimism from someone with deep connections to the Chinese government is notable. Washington should start paying attention if it wishes to avoid being surprised by political earthquakes in the world’s second-largest economy. // wonder if Shambaugh attended this dinner..He and Auslin seem to be on the same page

Related:Here Is Xi’s China: Get Used To It | ChinaFile – Arthur Kroeber 12.2014A different view from an equally experienced China watcher…confused yet? // China is a successful authoritarian developmental state which is now rich enough to start setting its own rules rather than just accepting other peoples’. That is the Xi project. To recognize this fact does not require one to celebrate it, or to ignore the costs of the authoritarian strategy…China, to steal John Connally’s famous phrase about the dollar, is its own country, and other people’s problem. It will develop in its own way, on its own terms, and others will just have to work with it as best they can

Related:The Sinocism China Newsletter For 11.16.12 |still sticking with what I wrote at the end of the 18th Party Congress in November 2012 // Watching Xi’s remarks I was struck by his three references to “中华民族伟大复兴” (translated as “great renewal of the Chinese nation” or “great Chinese renaissance”) and his omission of most of the standard ideological benchmarks. “中华民族伟大复兴” is not a new term and has historically been used by Deng Xiaoping and many others as the justification for reform. On November 15 Xinhua in 述评：循序渐进，中华民族复兴路线图清晰可见 discussed Deng’s plan for the renewal and said that the roadmap for the “great renewal of the Chinese nation” is getting clearer. Xi’s repeated mention of this goal may be another sign that will see a more nationalist China during his rein. The Party knows it needs more than “Scientific Development”, “The Three Represents”, “Marxism”, “Mao Zedong Thought” or “Socialism with Chinese Characteristics” to justify its rule. And that is why I think we will see attempts at reforms, though nothing like the political reforms Westerners and liberal Chinese hope for. The great renewal of the Chinese nation will not happen without significant changes to the economy, and a real crackdown on corruption (calling Wang Qishan…) Some will argue that it will also not happen without wholesale political reform, but Xi Jinping and the new leadership are unlikely to agree. Expect Xi Jinping to be a reformer, but possibly a hardline nationalist one. Be careful what you wish for?

2.China Blocks Web Access to ‘Under the Dome’ Documentary on Pollution – NYTimesclosing the barn door after 100m+ people watched it…seems a bit counterproductive but perhaps they decided that sentiment was becoming hard to manage?// The website of People’s Daily, the official party newspaper, had initially promoted the video and posted an interview with Ms. Chai, but those had been deleted by Friday morning. The censors’ guillotine fell a day after the start of the annual session of the National People’s Congress, the party-controlled legislature that is supposed to represent official candor and accountability.

Related:President Xi to give iron hand to polluters – Xinhua President Xi Jinping vowed here Friday to give an iron hand to any polluters in the smog-choked country. “We are going to punish, with an iron hand, any violators who destroy ecology or environment, with no exceptions,” said Xi, while reviewing the work report of the State Council together with National People’s Congress (NPC) deputies from Jiangxi Province. He asked the Chinese to protect ecology and environment like to “care one’s own eyes and life,” showing his resolve to curb widespread pollution that the world’s second largest economy is battling. “Protecting environment is ensuring livelihood,” Xi said.

3.Move Over Mao: Beloved ‘Papa Xi’ Awes China – NYTimes.com Li Datong, a political commentator in Beijing, said many of those who came of age in the 1960s and ’70s were especially unsettled. “It’s ridiculous that he’s pulling the personal cult ploy,” he said. “The Chinese propaganda apparatus, with its instinct of sucking up to the supreme leader, is partly to blame, but the problem is that he hasn’t moved to stop it. Obviously he is indulging this, which to be honest makes us very uneasy.” Despite their misgivings, many liberals said they doubted Mr. Xi would go so far as to revive the excesses of the Mao era. // What is going on really does not look anything like the cult of Mao. Don’t get me wrong, this is not a positive development, but it still looks to me as something fundamentally different from what occurred under Mao (FWIW here is my turgid masters thesis on Mao Badges and their role in the Cult of Mao). The “cult” looks like it is designed to signal to the party that Xi is in control, like a marketing campaign that says “resistance is futile” aimed at anyone in party/PLA who is not getting on board with the reform agenda and the corruption crackdown. And there are plenty of sycophants and opportunists inside and outside the system who are going to overdo it. There is also little evidence of any attempts at using the masses, in fact it looks like the opposite is happening if you consider how they effectively killed Weibo and especially its participation in the corruption crackdown

Related:China detains five rights campaigners who planned Women’s Day protest | Reuters Lawyers for two of the activists told Reuters the five women, who are from three cities, were detained by police on March 6. They were organizing demonstrations in several cities over the weekend against sexual harassment on public buses. One of the women detained, Li Tingting, known by her pseudonym Li Maizi, is best known for organizing a campaign for gender-neutral toilets. Another activist, Zheng Churan, was detained in the southern city of Guangzhou. Both are in their early 20s. Three other campaigners were detained in the eastern coastal city of Hangzhou and in Beijing.

5.Foreign banks tighten lending rules for China state-backed firms-Reuters The January-dated DBS document said: “Not all SOEs receive the same degree of government support. It is our further belief that the differentiation of such support will widen in the future as the government continues to pursue market economy.” DBS will now divide SOEs into tiers according to their likely level of government support, with subsidiaries considered more risky than top-level holding companies. Group companies that are not consolidated into the parent SOE’s financial statements will be evaluated as an ordinary borrower, the decision grid shows. DBS effectively acknowledges that lenders can no longer take for granted implicit support from above. “Compared to ordinary corporates, implicit support obtained from the parents of SOEs are subject to higher risks because of the risk of policy and people changes,” the document said.// how much of recent capital outflows comes from the unwind of commodity financing?

Related:Legal power of local government pledges in China rejected｜WantChinaTimes In line with China’s increasing moves towards a market-oriented economy, the country’s Supreme People’s Court recently ruled the legal power of pledges extended by local governments to be invalid, according to Shanghai’s National Business Daily. The paper noted however that the ruling will have little impact as most financial institutions have long regarded such pledges as merely a bonus when evaluating loan applications from financing platforms and enterprises under the auspices of local governments.

6.China’s February Exports Rise 48.9% – Bloomberg Business Exports gained more than 48 percent from a year earlier, the customs administration said in Beijing on Sunday. That compared with the median estimate for a 14 percent jump in a Bloomberg survey of analysts. Imports slid more than 20 percent, leaving a trade surplus of $60.6 billion. A recovering U.S. has helped underpin China’s economy as it seeks to cut down excess capacity and transition to a reliance on domestic demand rather than infrastructure investment. Today’s skewed numbers also reflect other factors, including the timing of the lunar new year holiday, plunging commodity prices and an effort to clamp down on capital outflows via faked trade receipts.

7.Why do we care about Xiaomi? — Benedict Evans we now appear to have at least a couple of Chinese companies doing what was supposed not to be possible – low-margin companies using commodity components and a commodity OS, yet achieving differentiation in design, software and services. This is a great illustration of the fact that looking at China alway challenges your assumptions about what’s inevitable in technology. Hardware companies doing good software and UI? Commodity box-shifters learning design? How far might that spread?

8.Contrarian highlights from China’s Government Working Report 2015 | chiecon Below are the less glamourous highlights not being washed through mainstream media, yet it’s these changes that will have more of an impact on people’s livelihoods. Hence these are the trends in China’s real economy to look out for, and will influence anyone doing business in China or picking China stocks over the following years.

BUSINESS, ECONOMY AND TRADE

China takes lessons from Japan, past master on slowdown, deflation | Reuters Beijing views Tokyo’s handling of the liberalization of capital flows and the yen over 30 years ago as key factors that led to the creation and subsequent bust of the asset bubble in Japan in the early 1990s, according to Japanese government and other sources who are in direct contact with Chinese regulators. “They aren’t a single bit interested in Japan’s successes. Their biggest interest is in Japan’s mistakes,” one China-based source who is directly in touch with Chinese regulators told Reuters on condition of anonymity. “Japanese and Chinese economies do share many similarities, so I assume there is quite a lot to learn from our experiences.”

李稻葵:腐败分子是经济增长癌细胞 反腐提高免疫力————要闻——中央纪委监察部网站Li Daokui equates corruption’s impact on economic development to cancer cells, says the corruption crackdown will “increase immunity”…after Xi said a couple of days ago that the corruption crackdown is spurring economic development who dares to not get in line?

中国东部沿海高铁全部盈利 重点城市间或需增建新闻腾讯网Rail exec says high speed rail lines in E China/coast all profitable, at capacity, may need to be expanded // 新华网北京3月6日电（记者齐中熙、于文静）全国政协委员、中国铁路总公司副总经理胡亚东6日在政协经济界分组讨论时透露，中国东部沿海地区高铁，包括京津城际、京沪、沪宁、沪杭、杭深、广深等全面实现盈利，且这些高铁能力已趋近饱和，未来将考虑在重点城市间建第二条、甚至第三条高铁。

Report: large-scale layoffs at Tesla China-TechInAsia Chinese newspaper The Economic Observer is reporting that the company is engaged in large-scale layoffs. According to the Economic Observer, Tesla China has about 600 employees, and it plans to cut around 30 percent of them (or around 180 people). “Before Spring Festival they had already started [layoffs],” one Tesla China employee told the paper. “Big departments like sales, marketing, public relations, and administration have all had cuts. The proportion of cuts in each department isn’t the same; in a big department like sales the plan is to cut 50 percent.”

Patenting and Innovation in China: Incentives, Policy, and Outcomes | RAND China has undergone a patenting boom, with yearly increases in patent applications averaging 34 percent. Since 2000 this has resulted in a 16-fold increase in the annual number of patents and according to the United Nations, China’s patent office has received more patent filings than any other country (UN December 11, 2012). Previous literature indicates that this trend is driven by large volumes of low-quality patents. Given this, I was motivated to understand the drivers of this trend, the impact of patenting-promoting policies, and the innovative outcomes of Chinese firms. This dissertation examines these three questions in three separate essays: (1) What are the drivers of this patenting boom, and what implications exist for Chinese technical innovation? (2) What are the innovative impacts of the Indigenous Innovation Policy, which is designed to promote patenting? (3) How innovative are leading Chinese firms?

POLITICS AND LAW

China Cracks Down on Foreign Nonprofits – WSJ Jérémie Béja, a French citizen who worked on human-rights issues at the French Embassy in Beijing for two years until late 2013. He then worked for China Development Brief, a registered Chinese nonprofit information service that tracks civil society, until police checked on foreigners working there, people familiar with the matter said. Mr. Béja, who is married to a Chinese national and has a 1-year-old child, was on a spousal visa that didn’t allow him to work, said a person close to the family. Police called him in and then interrogated and detained him for 10 days before putting him on a plane along with his family, the person said.

China to speed up drafting anti-corruption law – Xinhua China plans to develop national legislation to fight corruption, according to a report delivered by top legislator Zhang Dejiang Sunday. The country will also work out revisions to the Law on Administrative Supervision, said Zhang, chairman of the National People’s Congress (NPC) Standing Committee, while delivering a work report at the annual session of the top legislature. Making an anti-graft law is in line with a decision on rule of law adopted by the Communist Party of China Central Committee in October last year. The anti-graft legislation should be introduced as quickly as possible and the system of sanctions and prevention improved with the goal being a mechanism which means “officials dare not, cannot and do not want to be corrupt,” according to the decision.

Senior PLA military strategist ‘leaked state secrets, helped rebels in Myanmar’ | South China Morning Post A senior PLA strategist will face a military court on fraud charges that sources say are a cover for the officer’s alleged leak of state secrets to armed rebels in Myanmar. Major General Huang Xing , the former head of the research guidance department at the Chinese Academy of Military Science, was detained for “serious disciplinary violations” earlier this year, a phrase often used by the Communist Party to refer to alleged corruption.

FOREIGN AND DEFENSE AFFAIRS

CIA Reorganizes to Speed Analysis, Focus More on Cyber-Es – Bloomberg Business One of the officers said the nation’s spy satellites and communications intercepts have been useful but of limited value on four major issues the U.S. is facing. The officer cited locating the leaders of Islamic State in Syria, determining Russian President Vladimir Putin’s intentions in Ukraine, deciphering Iranian Supreme Leader Ali Khamenei’s bottom line in nuclear negotiations and understanding Chinese President Xi Jinping’s goals in the East and South China Seas.

Dispatch from Beijing: PLA Writings on the New Silk Road | The Jamestown Foundation By far the most prolific PLA author on the New Silk Road is Major General Ji Mingkui, a professor at China’s National Defense University (NDU). Ji’s writings see the New Silk Road as an economic panacea to the vast majority of China’s diplomatic and security problems with its neighbors, and also carry an underlying current of strategic competition for influence with the United States and Japan. Ji claims that the “Maritime Silk Road will promote regional security and cooperation, cool the South China Sea issue and be beneficial to realizing the Asian Dream” (China.org, November 19, 2014). Reflecting the role the New Silk Road plays in Ji’s version of U.S.-China competition, he notes that increasing Chinese investment in the region will be good for “creating a new image of China,” and that as the U.S. Rebalance to Asia “loses energy, Beijing is winning influence in Asia, and Beijing is already the main economic driving force in the region.”

Cracking Down on Foreign Espionage Channels | The Jamestown Foundation The new PLA guidelines combat China’s espionage problem from several directions. First, the CMC demanded greater controls over—if not outright bans of—cellular phones and Internet access as well as most outside contact via electronic means while acting in an official capacity. Second, the guidelines banned PLA officers from mistreating their soldiers through corporal punishment, “encroaching upon their interests,” and ordering them on personal tasks as well as the already-proscribed acceptance of bribes—three things that undermine morale. Third, the guidelines expanded the scope of background checks to include psychological evaluations. Although Xinhua drew attention to mental health, psychological screening is a commonly used tool in security vetting internationally (Beijing Youth Daily, February 5; Xinhua, February 4).

Corrupt PLA cadres treating performance troupes like ‘harems’｜WantChinaTimes.com Weak-willed cadres of the People’s Liberation Army are treating performance troupes like their own personal “harems,” says Communist history writer Cai Xiaoxin. In an exclusive interview with Sichuan-based Honesty Outlook magazine, Cai, the son of revolutionary Communist major-general Cai Zhangyuan, said one of the areas in need of desperate reform is the PLA’s performance troupes, who are tasked with boosting the morale of soldiers through singing and performances.

China defends island building in South China Sea, says not seeking new world order | Reuters Speaking at his annual news conference on the sidelines of the on-going meeting of parliament, Chinese Foreign Minister Wang Yi said China was undertaking “necessary” construction that was not aimed at any third party. “We are not like some countries which have carried out ‘illegal building’ in other people’s home, and we won’t accept unwarranted remarks about work on our own home,” he said, in apparent criticism of building by some other claimant states.

China says North Korean leader meeting to happen when ‘convenient’ | Reuters “As to when leaders of the two countries will meet, we have to see when it is convenient for both parties,” Chinese Foreign Minister Wang Yi told reporters on the sidelines of an annual meeting of China’s parliament. Chinese President Xi Jinping has met South Korea’s President Park Geun-hye six times since both took office in 2012, underscoring strengthening ties.

Will China Bring Peace to Afghanistan? | China in Central Asia the most interesting aspect of China’s activity in Afghanistan is the fact that it has shown itself willing to play this sort of role in a foreign nation. This clearly highlights the degree to which Chinese foreign policy is evolving and opening up to the world. The danger is that China is embarking upon this role in a country that has for generations proven impervious to external activism. The larger concern must therefore be what it might mean for Chinese foreign policy should this effort fail.

从股市看“军费k线图”an interesting look at companies and stocks that may benefit from China’s defense budget…don’t underestimate the momentum from the financial benefits of the military-industrial complex

TECH AND MEDIA

Xiaomi to Support 100 Startups in Push to Expand Product Line – Bloomberg Business Xiaomi has already backed 27 startups and is looking to increase that number almost fourfold, Chief Executive Officer Lei Jun said in Beijing Friday. The deals will help the electronics company expand into Internet-enabled “smart home” devices, while it continues in-house development efforts for key products such as smartphones, tablets and set-top TV boxes. “We want to help and support other innovators,” Lei said during a briefing at the National People’s Congress, which he was attending as a member of the delegation from southern Guangdong province. “You can’t say all these products are made by Xiaomi because you can’t downplay the contributions these other companies are making.”

Security firm finds preinstalled malware on Xiaomi Mi 4 smartphone | VentureBeat | Security | by Ruth Reader “We are certain the device that Bluebox tested is not using a standard MIUI ROM, as our factory ROM and OTA ROM builds are never rooted and we don’t pre-install services such as YT Service, PhoneGuardService, AppStats etc. Bluebox could have purchased a phone that has been tampered with, as they bought it via a physical retailer in China. Xiaomi does not sell phones via third-party retailers in China, only via our official online channels and selected carrier stores.” — Hugo Barra, VP International

FOOD AND TRAVEL

Excessive rare earth found in China’s top tea varieties｜WantChinaTimes The Beijing Food and Drug Administration unveiled four Chinese varieties of tea that contain rare earth metal up to 3.5 times the regulated limit, reports our Chinese language sister newspaper Want Daily. The teas that were named are: Tieguanyin from Anxi in Fujian, Longjing from Guangshan, Henan, Da Hong Pao from the Wuyi Mountain region and black tea from Jiangsu province. All of these are popular varieties, specifically Tieguanyin and Longjing, which have been listed in China’s top ten premium selections of teas.

BOOKS AND LITERATURE

Liu Cixin Is China’s Answer to Arthur C. Clarke – The New Yorker I thought of Liu Cixin, China’s most popular science-fiction writer. Liu is fifty-one years old and has written thirteen books. Until very recently, he worked as a software engineer at a power plant in Shanxi. In China, he is about as famous as William Gibson in the United States; he’s often compared to Arthur C. Clarke, whom he cites as an influence. His most popular book, “The Three-Body Problem,” has just been translated into English by the American sci-fi writer Ken Liu, and in China it’s being made into a movie, along with its sequels.

BEIJING

Thirsty Beijing to cap population at 23m in 2020-WantChinaTimes With a population of 21.5 million people last year, the capital has failed to meet the target set in 2005 to cap its 2020 population at 18 million, Beijing vice mayor Li Shixiang said during the ongoing two annual sessions of the country’s top legislature and top political advisory body. “Beijing is facing severe water shortage, as it is short 1.5 billion cubic meters of water every year,” said Li, adding that the south-to-north water diversion project cannot solve the whole problem. // 北京“瘦身”计划：五年内人口增加量不超150万

CCTV Architect Channels Future and Past for New Beijing Monument – WSJ If the CCTV complex—situated on the site of an old factory in an area of the city redeveloped to be the central business district—was about new ambitions, the headquarters for Guardian is an attempt, Mr. Scheeren says, to fuse history with the modern. One of China’s biggest and politically well-plugged-in auction houses, Guardian purchased a hard-to-get site in a historic section of Beijing, a stone’s throw from the former Forbidden City imperial palace and abutting a traditional alleyway, or hutong.